Standard II(B) – Market Manipulation
Standard II(B) – Market Manipulation dictates that members refrain from any activity that... Read More
Members and Candidates must not make any false statements about investment analysis, recommendations, actions, or other professional activity with the intent to deceive.
Members and candidates are prohibited from making any claims that promise or guarantee a certain rate of return on volatile assets under this criterion.
Salma Farak is the CFO of a multinational insurance firm. The new promotional material created by the marketing department states that she is a CFA Charterholder. She just sat the Level III CFA Exam and is awaiting her result. Farak is aware of the misstatement and does not inform the marketing department of the error. The marketing department distributes the material to current and prospective clients over the next financial year.
Has Farak violated Standard I(C) – Misrepresentation?
Solution
The correct answer is B.
Although Farak is not directly responsible for the misrepresentation of the qualifications, she allowed this material to be disseminated over some time.
Jessica Klein is preparing an investor briefing for her clients. She would like to briefly explain various financial concepts, such as price-to-sales (P/S) and real returns. She finds these descriptions on a popular finance website and copies these explanations (verbatim) without acknowledging the authors.
Has Klein violated Standard I(C) – Misrepresentation?
Solution
The correct answer is B.
Klein has violated Standard I(C) – Misrepresentation. For Klein to be compliant, she should always acknowledge the original author of any reference material.
Joseph Aphaja, CFA, is a portfolio manager at Invenco Inc., managing funds mostly made up of government bonds. Joseph has advertised his firm’s services on a tv ad by claiming that their returns are guaranteed at a risk-free rate since they invest mostly in government securities. Which of the following is most likely correct regarding Joseph’s claim? Joseph
A is correct. Joseph should not guarantee investors a certain return even if his firm invests in risk-free securities like government bonds. Additionally, the fund does not invest 100% in risk-free securities, and therefore there is a possibility that the fund’s return will not be equal to the risk-free rate. According to Standard I(B), members and candidates are prohibited from making any claims that promise or guarantee a certain rate of return on volatile assets under this criterion.
B is incorrect. Joseph is not in compliance with the CFA Institute Code and Standards because he should not promise or guarantee a certain rate of return on volatile assets.
C is incorrect. Joseph should not claim to offer a guaranteed return even if it was investing 100% in government securities which it does not.